Financial consequences of cross-compliance and flat-rate-per-ha subsidies: The case of olive farmers on sloping land

Under the past Common Agricultural Policy (CAP) olive oil subsidy regime, farmers were eligible for subsidies on the basis of amount of olive oil produced. This led to an intensification of production and negative environmental effects on sloping land, such as loss of biodiversity and more soil erosion. In 2004 the olive and olive oil regime changed, with integration of support to olive farmers in the Single Payment Scheme (SPS). From 2006 to 2013 farmers receive a constant amount of subsidies, based on the average amount they received in the 4-year reference period 1999-2002. On the basis of data from detailed agro-socio-economic surveys in five olive production areas on sloping land in Southern Europe, this paper shows financial results for four major types of olive groves: traditional, organic, semi-intensive and intensive. It shows that without subsidies only intensive farms are now financially viable, and that traditional and organic farms, even with present subsidies, have to deal with returns to labour below local wage rates. With the SPS cross-compliance it has become obligatory for farmers to comply with erosion control and other environmental requirements. Although this does not entail very high costs, this paper shows that cross-compliance hits in particular the traditional farms on sloping and mountainous land, where additional measures are most required and where olive groves are already not financially viable. The paper then analyses the alternative of paying all olive farmers a flat-rate-per-ha for the services they provide. This is based on the common feeling that farmland has multiple functions and that farmers in the EU should become increasingly rural land managers, being responsible for maintaining the various agro-ecosystem functions (e.g. agricultural production, biodiversity, erosion control, maintaining water quality). With a simple example, we show how such a proposal could work out for the four types of olive groves on sloping and mountainous land. Calculations are first based on a continuation of the present budget and thereafter on a lower budget (85% of present) to accommodate European tax-payers. With such a system financial results for traditional and organic olives groves will improve to such an extent that returns to labour are about equal to local wage rates, even with cross-compliance expenses And that will redress the trend towards abandonment of these olive groves. (C) 2010 Elsevier Ltd. All rights reserved.